Housing probe trips Costello

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Just as barristers should avoid putting questions the answers to which they do not know, governments should not appoint inquiries whose conclusions they cannot predict. The Treasurer, Peter Costello, is up to speed on both maxims but sometimes, experience fails you. You end up tripping on the banana skin you set to trap another. So it was last August when the Federal Government instructed the Productivity Commission to investigate the white-hot housing price boom.

The states at the time were taking a lot of heat for their property taxes, particularly stamp duties on the purchase of land, and the perceived slow rate of land release for housing development, especially in Sydney. Given the commission's economic hardheadedness, it was always going to find the states culpable on the tax front. And fair enough, too. Stamp duties on conveyancing are notoriously distortionary. A broad-based land tax would be more efficient economically than stamp duty revenue, if the states had the courage to make the switch.

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Initially, the Productivity Commission did not disappoint. It reported in March that the states could make housing a little more affordable if they took the tax burden off home buyers, particularly first-timers, and spread it across landholders.

But something happened between then and Wednesday when the commission's final report was released. The commission toned down its economics lecturing of the states, while maintaining the validity of its observations of state shortcomings. It also fixed its sights on the Federal Government and what it could do to help. Chief among its findings was that the 1999 halving of capital gains tax and the generous treatment of negative gearing had pushed up housing prices because they attracted investors. There went the well-laid plan of John Howard, Mr Costello, et al.

Unsurprisingly, Mr Costello immediately ruled out the Productivity Commission's call for a review of the tax system, along with a number of other recommendations affecting federal administration. He chose instead to highlight commission recommendations directed at state governments; by then his political currency on this issue was spent. Cherrypicking findings and suggestions that dent your opponent will not win you credibility if you simultaneously ignore criticisms of your performance. No one will take you seriously.

For all that, Mr Costello sensibly insists capital gains tax and negative gearing not be tightened, or even reviewed. Interest rates and expectations have cooled the market, and tinkering with property taxes may turn a relatively smooth landing into a crash. There are other ways, too, of delivering housing affordability. Today's report on how developers are setting aside 5 per cent of development land for partnerships with welfare agencies is an innovative example.

The last price spike reduced housing affordability to the double-digit interest days of the late 1980s. None of its many factors was more potent than the availability of cheap loans and psychology of expectation. These are not easily shaped by governments but Mr Costello appropriately suggests that governments "work co-operatively to resolve many of the impediments and inefficiencies". That is more likely to make a difference than partisan fumbling of the issue.

To cut emissions, a California roll

As the Federal Government put together its environmental package this month, the Californian Government launched its latest program to reduce car exhaust emissions by 30 per cent over the next decade. Under California's plan, car and light trucks - including four-wheel drives - must begin reducing emissions from 2009, with the full 30 per cent reduction due by 2015.

Legal challenges from the motor industry are likely. Even so, popular support may well lead to other American states following California's lead. If these measures gain wider support in the United States, it will be easy for Australia to follow suit and piggyback off a new generation of clean cars and light trucks.

It may seem like drawing a long bow to say a move in California - the world's fifth largest economy - could have a global impact. But it is not the first time it has been in the driver's seat, forcing through tougher emissions controls on motor vehicles. In 1999 it banned the use of methyl tertiary butyl ether in fuels. A similar measure was put into effect in Australia from this year.

California already has a zero auto emissions mandate in train. This is forcing car makers to introduce cheaper hybrid vehicles, which use batteries and traditional petrol engines. These vehicles produce significantly lower emission levels along with vastly lower petrol consumption.

Sydney's problem with car exhaust emissions is comparable with that of much of the US west coast, thanks to the steady rise in car and truck usage. The accumulation of heavy pollution levels in the Sydney basin after a few days with little wind is a ready reminder of the adverse impact that car exhaust emissions is having on the broader environment, quite apart from the ongoing hazard to human health. Additional efforts here to cut emission levels would effect a significant reduction in carbon dioxide levels.

The Kyoto Protocol is likely to come into effect following Russia's decision to abide by its greenhouse gas emissions reductions regime. However, moves such as those flagged by California may have as decisive an impact on improving air quality, the quality of life and ultimately the environment as such flawed global agreements. Australia has been cautious in going down the path of reducing greenhouse gas emissions. We should monitor carefully developments in the US in reducing car exhaust emission levels. They may open the door to similar improvements here.